Caribbean Islands

Economy

In the mid-1980s, the Cayman Islands were one of the most
prosperous areas in the Caribbean. The gross domestic product (GDP-
-see Glossary) in 1985 was approximately US$254.5 million, with a
per capita GDP of US$12,789. Approximately 75 percent of all
workers were employed in the service sector. Industry accounted for
an additional 23 percent of workers; the remaining 2 percent were
in agriculture. Forty-two percent of adult women were in the work
force in 1979. As with most Caribbean islands, imports to the
Cayman Islands greatly exceeded exports. In 1983 imports totaled
US$140.4 million, while exports totaled only US$2.4 million. Major
trading partners were the United States, Trinidad and Tobago,
Britain, and the Netherlands Antilles.

Until 1970, fishing generated most of the Cayman Islands'
income. In the 1960s, however, the islands began systematically to
nurture two industries--offshore financial services and tourism.
The territory passed new banking laws and made extensive
investments in infrastructure, including roads, airports, and wells
and desalination plants for water supplies. By the late 1980s, the
islands had become the Caribbean's leading tax haven. Citizens,
permanent foreign residents, and corporations paid no income,
property, inheritance, or capital gains taxes. In 1985
approximately 19,000 companies were registered in the islands,
including 498 banks and trust companies and 369 insurance
companies. Revenues from company registration fees, trust and
insurance licenses, and stamp duties brought in almost US$18
million during 1983. About the same amount was collected in import
duties, and total revenue exceeded government expenditures by
almost US$2 million. Banks on the islands handled an estimated US$1
billion a day in Eurocurrency (see Glossary) deals. External assets
of banks licensed in the Cayman Islands totaled US$127 billion at
the end of 1982.

The Cayman Islands also has succeeded in building its tourist
industry. Infrastructure for tourism has been developed
substantially, and new hotels and condominiums have been built on
all three islands. Tourist arrivals soared 300 percent between 1973
and 1984, largely because of more cruise ship arrivals. In 1986
more than 382,000 tourists visited the islands, including 216,000
cruise ship passengers. In 1985 tourism contributed US$75 million
to the economy and employed one-fourth of the work force.

Despite the relative prosperity of the Cayman Islands, problems
remained. The tourism boom had inflated land prices to such an
extent that young islanders found it difficult to build homes.
Agriculture was almost nonexistent in the Caymans because of low
rainfall and poor soils. Over 90 percent of the islands' food was
imported, a major part of the Caymans' import bill. However,
development efforts had made the islands self-sufficient in eggs
and bananas, and beef, oranges, and tomatoes also were produced.

Serious questions also had been raised about the offshore
banking industry. In the early 1980s, United States officials
became concerned that Cayman banks were becoming havens for
illegally obtained drug monies. The United States Department of
Justice estimated that between 20 and 40 percent of the US$76
billion generated annually by illegal narcotics trafficking in the
United States and the Caribbean was laundered through offshore
banks in the Caribbean, where criminals were shielded from
investigators by secrecy laws. The United States government
therefore put pressure on Britain and the Cayman Islands to modify
bank secrecy regulations to allow the United States attorney
general access to Cayman bank and business records. On August 27,
1984, the two countries and the Cayman Islands signed a pact
requiring the islands' administrators to obtain requested records
within fourteen days of receiving a certification that the records
were needed for an investigation of a drug-related offense.

The Cayman Islands had a modern communication system in the
1980s. The British firm Cable and Wireless operated an entirely
automatic system of over 9,000 telephones. A small ground satellite
station and submarine cables provided international links to the
United States and Panama. Four radio stations on Grand Cayman
served the island, broadcasting on 1205 and 1555 kilohertz and on
101.1 and 105.3 megahertz. The Cayman Compass and the
Sun were both published five times a week.

Transportation among the islands was relatively good. In 1984
the territory had 252 vessels over 100 gross tons; the large number
reflected the islands' sizable charter boat business. Georgetown
was a major port. Populated sites on all three islands were linked
by 160 kilometers of all-weather roads. Municipal buses ran between
Georgetown and West Bay on Grand Cayman. Owen Roberts International
Airport outside Georgetown and an airfield at the western end of
Cayman Brac had paved runways to accommodate international flights.
There were no railroads or inland waterways.

In the late 1980s, the Turks and Caicos economy was
considerably less prosperous than that of the Cayman Islands. The
GDP in 1984 was approximately US$26 million, with a per capita GDP
of US$3,478. Services employed 61.8 percent of the work force,
industry 23.3 percent, and agriculture 14.9 percent. Thirty-three
percent of adult women were in the work force in 1979. Imports
exceeded exports by over US$18 million in 1982. Major trading
partners were the United States and Britain.

Historically, economic development in the Turks and Caicos had
been limited by weak infrastructure. The highway system on the
islands was underdeveloped in the 1980s. South Caicos and Grand
Turk Island had a total of 24 kilometers of paved roads; the other
islands had a total of about 100 kilometers of gravel roads.
However, the completion in 1983 of a British-financed airport on
Providenciales was an important stimulus to the rapidly growing
tourism industry. Within a year, a major international hotel chain
had begun operations on the islands; the chain opened 100
additional rooms in 1985 as tourist demand exceeded expectations.
In 1986 arrivals of stopover visitors to the Turks and Caicos
increased by 22 percent over the previous year, one of the highest
growth rates in the Caribbean. Two additional hotels were expected
to be constructed in 1987. Large ships could be accommodated on
South Caicos, Salt Cay, Grand Turk Island, and Providenciales. In
addition to Providenciales, Grand Turk Island had an airfield with
a runway capable of handling international flights.

As in the Cayman Islands, offshore financial services were an
important component of the Turks and Caicos economy in the 1980s.
More than 4,000 companies registered in the islands in the mid1980s to take advantage of the absence of company and income taxes
and exchange controls. In 1986, however, the industry stagnated in
response to increased competition from other Caribbean islands and
investor concerns regarding the political situation in the Turks
and Caicos.

Fishing had also become an important industry by the mid-1980s;
lobster, conch, conch shells, and fish were the territory's
principal exports. Exports of fish to the United States, the main
customer, totaled US$3 million in 1983. Despite its importance, the
industry was plagued by serious technological and marketing
problems; overfishing was also a major concern. Almost all
foodstuffs other than fish were imported by the Turks and Caicos.
Low rainfall, poor soils, and the inadequacy of irrigation systems
confined agriculture to small amounts of subsistence farming.

The Turks and Caicos government experienced chronic budget
deficits in the 1980s; as a consequence, operating subsidies and
development aid from Britain were essential. The 1983 closure of
the last United States military base on the islands--a navy
facility on Grand Turk Island--led to a loss in rent equal to 10
percent of total government revenues. In an effort to reduce
expenditures, the government initiated a privatization policy in
1985; within two years, much of the debt-ridden electricity
department had been transferred to private control. Because of the
government's action, the deficit was reduced from US$4.3 million in
1984 to US$2.2 million for the fiscal year (FY--see Glossary)
ending March 1987.

In the 1980s, domestic communications in the Turks and Caicos
were only fair; international communications were of better
quality. Although the islands had 1,400 telephones, service was
often erratic and was limited to Grand Turk Island, North Caicos,
South Caicos, and Providenciales. Two submarine cables and a small
ground satellite station provided modern international links.
Broadcasting was limited to one AM radio station on Grand Turk
Island on 1460 kilohertz. The Turks and Caicos News was
published weekly.